uMkhanyakude District Municipality Intervention: briefing by MEC

Meeting report

KZN Provincial Executive Council Intervention at uMkhanyakude District Municipality
Ms Nomusa Dube-Ncube, MEC for KZN Cooperative Governance and Traditional Affairs, said that on 7 October 2015 the Provincial Executive resolved to intervene in uMkhanyakude District Municipality in terms of Section 139(1)(b) of the Constitution. On 8 October 2015 the Minister and the National Council of Provinces (NCOP) were notified of the decision to intervene in line with Section 139(2) of the Constitution. The Minister approved the intervention within the prescribed timeframe of 28 days. The NCOP on the other hand has until 5 April 2016 to either approve or disapprove the intervention.
 
The MEC explained that for a number of years, the municipality was limping from one problem to another. The problems were indicated by persistent governance, financial and service delivery challenges that the municipality was unable to resolve despite provincial and national government support. During the first quarter of 2015 several indicators from the municipality itself, from KZN COGTA, from the Department of Water and Sanitation (DWS) and from Provincial Treasury showed that the municipality was experiencing serious governance, financial and service delivery problems. As a consequence, on 27 March 2015 COGTA proposed a self-imposed Recovery Plan and Payment Plan which was accepted by the municipal council. However management failed to implement the Recovery Plan and Payment Plan between April and June 2015.
 
In July and August 2015 KZN COGTA and Provincial Treasury deployed a Support Team comprising of financial, technical and governance experts at the municipality in line with Section 154 of the Constitution. Engagements were held with different stakeholders on the 21 and 24 of September 2015 including the municipality itself, DWS, SALGA, Provincial Treasury, political leadership and labour unions. It was at these engagements where it became apparent that the Support Team was unlikely to succeed in turning around the municipality unless the intervention was elevated to a Section 139 intervention. This course of action was then recommended to the Provincial Executive by the MEC for COGTA.
 
The MEC said that the basis for invoking Section 139 at uMkhanyakude in terms governance and institutional matters was that the Council and the Executive Committee were meeting regularly, however the implementation, monitoring (oversight) and lack of consequence management pointed to poor performance on the part of the Executive Committee and Council. Portfolio committees and the Municipal Public Accounts Committee (MPAC) were not meeting as they were supposed to, thus failing to exercise effective political oversight over management. The municipality did not have an Audit Committee following the expiry of contracts of the previous committee. An Interim Audit Committee was appointed for three months pending the appointment of the Audit Committee proper. Their contracts had also expired before the Audit Committee could be properly appointed. The municipality admitted that its organogram was bloated and could not be funded on a sustainable basis and that the municipality had in past years hired and absorbed staff in non-core functions. The municipality was failing to rectify this matter. Despite numerous attempts by KZN COGTA to support the municipality and family of municipalities, intergovernmental structures as well as the associated technical support structures remained dysfunctional.
 
The basis for invoking Section 139 in terms of financial viability and management, was that the municipality was persistently failing to meet its financial commitments. Thus the ability to pay back its short term liabilities, was 0.65:1 against the norm of 1.5-2:1. Although management had developed a cash flow plan, there was no commitment and urgency to take decisions that were critical to the sustainability of the institution. The 2014/15 Annual Financial Statements of the municipality showed that the municipality had only about R12.6 million in cash and cash equivalents against unspent conditional grants of R31.5m as at 30 June 2015 pointing to the use of conditional grants to fund operating expenditure. The Municipal Manager had admitted that the municipality had outstanding creditors of R130m as at 30 June 2015 which indicated poor financial and project management.
 
The Provincial Treasury found both the operational and capital budget of the municipality to be unfunded I in deficit to the amount of R117m. The internal control environment remained weak. The management persistently failed to implement policies and procedures of the municipality leading to the ballooning of unauthorized, irregular or fruitless and wasteful expenditure. The municipality adopted cost cutting measures at the beginning of 2015 but management failed to implement the measures. During the 4th quarter (ending 30 June 2015) the KZN COGTA quarterly assessment found that the municipality's poor revenue collection record persisted at 44% against the norm/benchmark of 95%. The municipality consistently failed to produce an updated audit action plan to track the progress being made in addressing the Auditor-General's findings.  Due to cash flow challenges the municipality was struggling to pay its creditors. It had persistent poor audit outcomes: Qualified (2012/13), Qualified (2013/14) and Disclaimer (2014/15).
 
In terms of basic service delivery failures, the municipality remained one of the poorest performers in terms of the "blue drop" and the "green drop" assessments conducted by DWS. Project management and supervision of consultants was poor.
 
The municipality was utilising conditional grant funds, Municipal Infrastructure Grant (MIG) funds in particular, to meet operating expenditure in contravention of section 17 of the Division of Revenue Act, 2015. There was an absence of a revised Water Service Development Plan (WSDP). According to DWS, the last revision was dated February 2012. Under-spending on the 2014/15 MIG programme resulted in R40m of the original allocation of R206m being stopped in terms of section 19 of the Division of Revenue Act, 2014. The municipality had lost the 2014/15 implementing agent status for the Municipal Water Infrastructure Grant (MWIG). The municipality also lost their Accelerated Community Infrastructure Programme (ACIP) funding for 2015/16 which was given to Mhlathuze Water to implement the three waste water treatment works refurbishments for uMkhanyakude (R13m).
 
The expenditure on Repairs and Maintenance in 2013/14 was 2.46% of PPE (Property, Plant and Equipment). The 2014/15 budget for repairs and maintenance was slightly higher at 2.52% of PPE. The norm is 8%. The municipality did not have a planned and preventative maintenance programme in place, nor funds to finance such a programme. Consequently, this had a negative impact on confidence levels in the value placed on PPE.

In terms of the Back To Basics Support Plan, the municipality took too long to adopt their Back to Basics Support Plan. The assessment of the programme in the municipality as at end of quarter four (30 June 2015} showed that the municipality had to be re-categorized from being 'challenged' to being a municipality 'requiring intervention'.

The municipality was experiencing persistent unprotected labour strikes due to the failure by management to address labour matters.

All service delivery protests recorded by COGTA's Rapid Response Unit in municipalities within the uMkhanyakude family of municipalities during the period 1 January to 31 August 2015 were about water supply issues in the main.
 
The MEC said that the resolution of the Provincial Executive noted that an intervention in terms of Section 139(1)(b) of the Constitution be implemented and COGTA assumed the functions specified in sections 51, 54A, 56 and 67(1)(h) of the Municipal Systems Act and the District Municipal functions in terms of the Intergovernmental and Framework Relations Act, 2005. It directed that a Recovery Plan aimed at securing the municipality's ability to meet its obligations to provide basic services and meet its financial commitments be imposed on the municipality. The Recovery Plan will (i) be prepared in accordance with national legislation; and - (ii) binds the municipality in the exercise of its executive authority, but only to the extent necessary to solve the crisis in its financial affairs and service delivery failures. A ministerial representative would be appointed at uMkhanyakude District Municipality (Mr MM Sithole) as well as becoming a compulsory signatory on the municipality's bank accounts. COGTA requested further support from the Provincial Executive Council to identify R40 million required for the operations and maintenance at uMkhanyakude as a matter of urgency to attend to operational and maintenance challenges.
 
Discussion
The Chairperson said that the MEC in her presentation mentioned that the municipality had a deficit of R117m which was reduced to R57m. But section 24(3) of the Municipal Financial Management Act, stated that as soon as the municipality approved the budget the accounting officer must ensure that he took the budget to the National Treasury and the relevant Provincial Treasury. Further, section 23 emphasised the processes of consultation with the Provincial Treasury. He asked for clarity in terms of the law which stated that a municipality is not supposed to budget on a deficit because the failures that were happening at the level of municipality were equally vested as the responsibility of the MEC.
 
The MEC replied that it can be seen that the original Support Team had been decreasing the deficit and it was true Treasury was working with the municipality to further ensure that the deficit is eventually wiped out. Treasury had deployed three financial experts and was helping the municipality to balance its books, but also deal with the issues tabled before the Committee. However, it could be seen from the recapitalisation done with National COGTA, it was clear that the municipality was falling under those challenged municipalities which needed an intervention. Finally, a number of labour disputes, service delivery protests, and all the other listed issues made it clear that there was no other way to assist the municipality except instituting the Section 139 intervention. Therefore, they had to make sure there was a recovery plan to ensure that the municipalities provided services and prepared their budgets in terms of the legislation. Once they instituted Section 139, they had to ensure that there was implementation of systems, policies and procedures.
 
Mr M Chetty (KwaZulu-Natal, DA) thanked and complimented the MEC for the good work she has done in the municipality.
 
The Chairperson asked the MEC how she would rate the uMkhanyakude District Municipality given the fact that it was a water services authority (WSA) and had other responsibilities.
 
The MEC replied that in terms of Back To Basics they have rated the municipality as one needing intervention taking into consideration financial viability, governance issues and service delivery record. Therefore, the need for a hands-on approach. They had brought in a support team of three people from Treasury, two from COGTA, six engineers and again two people from Treasury dealing with procurement issues, plus two legal advisors dealing with municipal contract issues, creditors and recovering money that the municipality needed to recover.
 
The MEC said that the unfortunate thing was that, as politicians, they relied on officials to assist and to give them information that was truthful and that would allow them to take particular decisions on matters. Even if they had all those experts - because of the challenges in the municipality - they would still find those challenges, which was a very unfortunate situation. But moving forward to 2016, in terms of the councillors that were coming in they were thinking of strategies that will assist all of them. As people entrusted with responsibility by communities because in many instances they have relied on good faith for people to do their job. Therefore, they were going to put the new crop of councillors on a rigorous training program that will aim at training councillors as specialists in various fields like finance, internal audit, etc. They will measure the success or lack of success of those training programs through what will come out of those municipalities.
 
The Chairperson said that the MEC had indicated an intervention in terms of section 154 of the Constitution and the report stated that the intervention was yielding results. He asked why the MEC was requesting a Section 139 intervention, if the Section 154 intervention was yielding results.
 
The MEC replied that they were requesting the Committee to approve the intervention because it has already started as the decision was taken in October 2015 and the Minister agreed with the decision and now they needed the Committee to concur as well. Since the Section 139 intervention, they were yielding results, but before that it was a soft intervention which was not yielding results. All the people deployed in the municipality were there because of Section 139 which was why the intervention yielded results. In terms of the Constitution, municipalities were executive authorities in their own right and no sphere of government can interfere with their work. Only if municipalities cannot discharge their responsibility, can the province intervene as a last resort in terms of Section 139. This was why they wanted the Committee to concur so that together they could assist the municipality in discharging its responsibilities.
 
The Chairperson thanked the MEC for the presentation and responses.
 
Progress Report on the Implementation of the Recovery Plan
The MEC provided a table showing the state of progress in implementing the recovery plan as of 28 January 2016 which showed 21% of targets met since October 2015.
 
The MEC said that the main area of challenge is with regards to provision of basic services and ageing infrastructure. Various reasons for poor performance have been put forward by the ministerial representative leading the intervention team at uMkhanyakude.
 
With regard to the Umgeni Water Intervention Project, the aim of the intervention is to rehabilitate existing water supply (and sanitation) schemes as prioritised by the UKDM WSA. The uMkhanyakude District Municipality is a Water Services Authority (WSA) and consists of five local municipalities and one District Management Area (OMA). These local municipalities are uMhlabuyalingana, Jozini, Big Five False Bay, Hlabisa and Mtubatuba and St Lucia Park.
 
The main rivers and water sources are the Pongola, Umfolozi, Mkuze, Hluhluwe, Msunduze and Ngwavuma. The major dams are the Hluhluwe and Jozini dams and Lake Sibayi, which is a freshwater lake. There are a large number of production boreholes or hand pumps for a rudimentary level of service.

Immediate interventions for all local municipalities (1-3 months) were: Rehabilitation of ground water sources (production boreholes, hand pumps, windmills etc); Shemula bulk line rehabilitation; Jozini rising main to the command reservoir to feed the Machibini area; Sewerage treatment ponds in Mtubatuba, St Lucia, KwaMsane and Mosvoldt Hospital; Various leaks within the bulk reticulation; Installation of 107 Jojo tanks; Repairs to moveable assets such as the water tankers and supply of diesel generators - single and three phase for areas where there is no power supply or where there was conversion from hand pumps to production boreholes.
 
The cash flow situation in the municipality remains precarious largely due to the fact that at the beginning of the financial year management used the 2015/16. Equitable Share revenue to pay creditors of the previous financial year. Efforts to reduce costs will have to be intensified to break this cycle.
 
There has been good progress in the procurement and use of water tanker trucks and water tanks to counter the drought.  However, the implementation of the boreholes projects and the refurbishment of existing projects had encountered initial challenges. These interventions are currently being fast tracked to mitigate for the late start. The total number of Jojo tanks installed in UKDM by Mhlathuze Water since the start of the drought now stands at 81. Any savings on the drought implementation projects by UKDM will be used for the procurement of further Jojo tanks.

In terms of current interventions: A total of 15 tankers were originally procured and delivered to UKDM by DWS. Five additional tankers have since been provided. Two tankers are provided by Mhlathuze Water per week.  There are currently three official water points for filling up of tankers (Jozini, Shemula and Mkuze). Tankers are no longer filling up at Mtubatuba and Hluhluwe, due to shortages of production there. Water for tankers is now to be sourced from Empangeni (from uMhlathuze Municipality). However, uMhlathuze Municipality requires a R273 942.00 deposit. UKDM are having to consider the possibility of filling up tankers at private boreholes in Mtubatuba, as the prevailing drought continues to minimise the available options.
 
Four water supply projects were identified for both refurbishment and upgrade, under DWS funding as a drought intervention. The cumulative budget allocated for the four projects is R51 746 827 and a total of R24 658 569 has been claimed by UKDM to date, all of which has been paid by DWS. There were initial delays at the outset of these projects but UKDM has agreed to fast track these refurbishment and upgrade projects funded by DWS as a short to medium term drought intervention.
 
The MEC concluded that the primary medium to long term intervention is to fast track the implementation of the bulk water supply projects funded by the DWS Regional Bulk Infrastructure Grant (RBIG) grant, and the reticulation water supply projects, funded by Municipal Water Infrastructure Grant (MWIG) and the MIG.

The Committee applauded the intervention made in terms of Section 139 of the Constitution and was satisfied with the progress made and approved the intervention.
 
The meeting was adjourned.